President Donald Trump summoned Federal Reserve Chairman Jerome Powell to the White House on Monday to discuss the economy and interest rates — issues on which Trump has repeatedly attacked the Fed.
The Fed said in a statement that Powell’s message to Trump during their meeting was similar to the one he expressed in congressional testimony last week, when he said that the economy is in good shape and that the Fed would likely suspend its rate cuts for now. The central bank has cut its benchmark short-term rate three times this year to try to support the economy.
Monday’s meeting could fuel concerns that the White House is intensifying public pressure on Powell, who was Trump’s own choice to lead the Fed, to cut rates more aggressively.
As an independent agency, the Fed has long been seen as needing to remain free of political pressure to properly manage interest rate policy. Though other presidents occasionally sought to push the central bank toward rate cuts, they typically did so privately.
“Finally, Chair Powell said that he and his colleagues on the Federal Open Market Committee will set monetary policy, as required by law, to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis,” the Reserve said in its statement.
Most economists say they think Powell will continue to resist Trump’s pressure. Some regard the chairman as more politically agile than some of his predecessors, such as Ben Bernanke.
“I don’t see evidence of political pressure having any impact on Powell,” said Kathy Bostjancic, an economist at Oxford Economics.
Powell regularly meets with members of Congress from both parties. During two hearings last week, lawmakers sounded largely supportive and respectful of the Fed’s independence.
Democrat Bill Pascrell of New Jersey, criticized Trump ib Twitter for trying to “intimidate the Federal Reserve in a way Presidents have never done.”
“Kudos to Chair Powell for resisting Trump’s bullying,” said Pascrell.
‘Very good and cordial’ meeting
For months, Trump has regularly assailed Powell’s leadership and for not cutting rates as much as the president would like. Trump has called Fed officials “boneheads” and has asserted that the economy and stock market would be performing better if rates were lower or even negative as in Europe and Japan.
Trump tweeted Monday that his meeting with Powell was “very good and cordial.” He added that he and the Fed chairman discussed “interest rates, negative interest, low inflation, easing, Dollar strength and its effect on manufacturing, trade with China, E.U. and others, etc.”
Treasury Secretary Steven Mnuchin also attended the meeting, the Fed said.
Presidents often meet with Fed chairs to discuss the economy. But the stakes are much higher when the backdrop is Trump’s frequent attacks on the Fed and its chairman.
Monday’s meeting was at least the second since Trump elevated Powell to the chairman’s post in 2018. In February this year, the two had dinner at the White House. At that dinner, they discussed the state of the economy as well as the Super Bowl and Tiger Woods’ golf game, Mnuchin said then.
Trump has complained that negative rates, which have been put in place by the European Central Bank and the Bank of Japan, have left the United States, with its higher rates, at a competitive disadvantage. The Fed’s benchmark rate is in a range of 1.5 per cent to 1.75 per cent, an extremely low level by historic standards, particularly given that the unemployment rate is near a 50-year low of 3.6 per cent.
In a speech last week, Trump said, referring to negative interest, “Give me some of that…. I want some of that money. Our Federal Reserve doesn’t let us do it.”
The Fed’s relatively high benchmark rate, compared with the negative rates overseas, probably does keep the dollar at a higher value compared with the euro and yen. That, in turn, can make U.S. exports more expensive overseas.
Still, the vast majority of mainstream economists oppose the notion of deploying negative rates for the U.S. economy, which is healthier and is growing faster than its European and Japanese counterparts.
Negative rates are typically a sign that an economy is struggling. Many U.S. economists have expressed skepticism that negative rates help accelerate growth and argue that they would cause problems unique to the U.S. financial markets.
Far more Americans, for example, stash savings in money-market funds than savers overseas. Those funds seek to keep their shares equal to $1. Negative rates could cause more of those funds to fall below $1, or “break the buck,” which last occurred during the financial crisis a decade ago and fuelled panic among investors.